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SMU Lecturer asks Workers’ Party’s Jamus Lim about Redundancy Insurance and Minimum Wage

TL;DR – The Senior Lecturer from the School of Economics also has two suggestions for Jamus.

There has been a fair bit of online discussion on minimum wage lately, thanks to the Workers’ Party advocating for a $1,300 minimum wage in their GE2020 manifesto.

Yeps, suddenly everyone’s interested in minimum wage. Go read the comments in the Mothership post, quite interesting to observe how different everyone’s views are.

And kinda appalling how little some people know of our current scheme, and they just dive straight into the discussion, waxing lyrical about how fantabulous minimum wage is without bothering to understand more.

In Singapore, we do not have minimum wage at the national level. What we do have is the Progressive Wage Model (PWM), which is essentially minimum wage (and more) by sector.

I like how SM Tharman describes it: Minimum wage is only the first rung, but the PWM is a ladder.

The PWM ensures that there is a wage floor and also progression opportunities for these workers, and is further complemented by Workfare Income Supplement (WIS) and even supported by Silver Support Scheme. All these and more work to uplift the income and lives of low-wage workers, especially those vulnerable to wage stagnation, and their families.

Maybe some of the people flocking to advocate for and defend minimum are experiencing the #JamusLim effect.

But I think this window for such lively online discourse is a good thing though, to have more people interested in these things and actually doing research reading and discussing.

Great opportunity to create awareness and to educate.

All I hope is that people read diversely, from people in support of the minimum wage to people who are against it, and also study actual cases where there’s minimum wage and the effects it has on poverty, on income inequality/disparity, on (un)employment, etc.

I’ve read quite extensively on this topic over the years and I’ll tell you upfront that studies have been inconclusive.

But more and more recent studies and actual cases are leaning towards how minimum wage has failed to help the very people it’s supposed to help – the least-skilled or experienced, the lowest-educated, and sometimes, the youngest and oldest workers.

Ignore the totally-not-palatable thumbnail. It’s a good video, so watch it!

By the way, here’s a “fun” fact, except that it’s actually more tragic and sad than fun.

Did you know that minimum wage had a racist past? It was enacted because back in the day, non-white people would be hired because they were willing to work for less.

For instance, a minimum wage law was passed in 1925 in the Canadian province of British Columbia, with the intent and effect of pricing Japanese immigrants out of jobs in the lumbering industry.

In another example, Australia’s minimum wage law was passed to protect the white Australians from competition of the other “races”, particularly the Chinese who were willing to work for less.

And of course, in US too, white labour was “under-cut” and squeezed out of the employment market. So the minimum wage, when implemented, ended up putting the non-white workers out of work.

So you can imagine, if a minimum wage is set too high, employers will start getting “pickier” about the quality of their staff and hence, the least skilled, least experienced, least educated or even oldest/slowest may not even land jobs.

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And it’ll be illegal to hire them for less even if they’re willing to take less. Of course, illegal labour might happen then.

Anyway, that’s a story for another day.

I chanced upon a contribution piece by Dr Wu Zheng-xiao on Zaobao. Dr Wu is a Senior Lecturer of Statistics at SMU’s School of Economics, SMU.

In his article, Dr Wu discussed two main ideas that Dr Jamus Lim had brought up during the Political Debate on July 1st, namely, minimum wage and redundancy insurance, both touted as key proposals in the Workers’ Party’s manifesto. Dr Wu also has two suggestions for Dr Jamus Lim.

Since it’s such an interesting article, I’m going to attempt to translate into English for our readers here.


Original in Chinese: 吴正晓 / 早报

Wu Zheng-xiao: Two suggestions for Workers’ Party’s Jamus Lim

Once the results of GE2020 on July 11th were out, the Workers’ Party, which economist Dr Jamus Lim belongs to, beat the People’s Action Party team which comprised three office holders in Sengkang GRC in a surprise win. Word has it that Dr Jamus Lim’s performance in the Political Debate on July 1st was so outstanding that it contributed to the Workers Party’s win. So I found the video of the debate online and watched it carefully.

In my eyes, Dr Lim’s performance in the debate was airtight, impeccable even, as a politician. But as an economist and educator, Dr Lim’s performance was debatable.

In the first round of the debate, the moderator had asked the candidates how their respective political parties would tackle the issue of rising unemployment and how to create jobs. Dr Lim first talked about how Singapore’s economy is now facing one of its biggest challenge since independence, and that we should not be raising GST now as that would hamper the economy. Next, Dr Lim brought up national minimum wage ($1300 per month) and redundancy insurance.

Now there is no doubt that the quality of jobs in the employment market will go up once we fix the national minimum wage to be $1300 per month. But just like how we often say in all economics classes, there’s no free lunch. There’re two sides to everything, there’re pros AND cons to everything. So what are the disadvantages of the minimum wage scheme? The answer is this: You CAN’T have both quality and quantity. If you raise the quality of the jobs, then the number of jobs will come down.

Minimum wage has always been a contentious topic in the world of economics, and there’re more opponents than proponents. The mainstream view is this, if it’s for the purpose of raising the quality of jobs, then there are better policies and ways, such as strengthening workers’ training, elevating skills and increasing productivity.

Undeniably, there ARE some economists who are supportive of the minimum wage model. But I think most economists will object to implementing minimum wage or increasing minimum wage during a period of rising unemployment and economic downturn. So you can imagine my surprise when Dr Lim brought up minimum wage in answer to the moderator’s question.

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What surprised me even more was when Dr Lim brought up redundancy insurance. Dr Lim said all it takes is just $4 a month, and a retrenched worker can receive 40% of his last drawn salary every month for six continuous months. Low premium, high payout, such are the benefits of insurance, it sounds too good to be true. In a later segment of the live TV debate, Dr Lim even stressed that the Workers’ Party has “done the math”, and that their proposals are all budget-neutral.

How practical is redundancy insurance? I’ve done some rough calculations here. For simplicity’s sake, I’ll ignore the effect of salary raises and adjustments over time. Singaporeans’ average income is $5596, and 40% of that is $2238. This works out to a total of $13,428 ($2238×6) over six months.

How long before a Singaporean worker can receive the payout of the redundancy insurance? (As the Chinese saying goes), the wool is from the sheep’s back. Assuming this redundancy insurance is sustainable, based on $13,428 payout over $4 monthly premium, this works out to 3357 months. This means that the worker can expect to receive the insurance payout every 280 years.

This is to say, if a worker works for 40 years in his lifetime, then there’s only a 40/280 (or 1/7) chance he will be able to receive this insurance payout. Conversely, this also means that there is a 6/7 chance the worker will just be paying $4x12x40=$1920 in premiums, and not receive a single cent back.

In economics, we often say nothing for nothing and very little for a half penny, or simply, you get what you pay for. Yes, insurance products with low premiums and high payouts do exist in real life, but in such cases, the majority of the customers won’t even get a cent back. Does this contradict with what Dr Lim had said? No, it doesn’t. He is right that such redundancy insurance is budget neutral (since workers pay for the premiums, and not the government). Also, it’s worth noting that everyone’s definition of “retrenched worker” is different. Dr Lim did not have enough time during the political debate to explain clearly the Workers’ Party’s definition.

But, is such an insurance what Singaporeans want? I don’t think so. If we assume that each worker receives a retrenchment payout every 10 years, then the premiums work out to be 4×28=112, or $1344 per year.

As a politician, Dr Lim’s showing in the debate can be described as outstanding, and we even have his party’s victory in the elections as proof. But as an economist and educator, Dr Lim was not convincing in the debate. Because he did not explain clearly the pros and cons of his policies. He only talked about the pros and there was no mention of the cons. Of course, the lack of time was one main reason for this.

Here, I’d like to congratulate Dr Lim’s party for the win. Dr Lim is indeed very courageous, having chosen a difficult path. Economists need only to talk theories on paper, but politicians need to be really doing the deed and bringing those theories to real life.

Lastly, I’ve two suggestions for Dr Lim.

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In the live TV debate, Dr Lim had that said the Workers’ Party does not object to policies for the sake of objecting. Very well said. So my first suggestion is that I hope when it comes to Worker’s Party’s proposed policies, Dr Lim will also not concur just for the sake of concurring. One example is how it is really not the right time to be implementing minimum wage now.

I’m sure Dr Lim is aware of how economists Abhijit Banerjee, Esther Duflo and Michael Kremer won the Nobel Prize for Economics in 2019 for their experimental approach to alleviating global poverty using randomized controlled trials (RCTs).

My second suggestion is that I hope Dr Lim too can apply RCTs for the Workers’ Party’s proposals. Take the example of redundancy insurance. If the Workers’ Party genuinely thinks it’s a feasible policy, why not try offering Sengkang residents such a redundancy policy through the town council, and the effects can then be studied.

Come five years later when we have another GE Political Debate, when talking about pushing out new proposals and policies, Dr Lim can actually say, “We’ve done the experiment”. Surely that’s even more persuasive and convincing then “We’ve done the math”.

The author is a Senior Lecturer in the School of Economics, SMU

(Editor: Randomized controlled trials are experiments that apply an intervention to only a randomly selected portion of the target population, so that you can compare the effects of the intervention against a group that didn’t receive it.)

Editor’s Notes (July 21st)

1) Here are more details regarding the redundancy insurance that the Workers’ Party is advocating for.

“The payouts would come from a centrally pooled funds that both workers and employers contribute to, he said. WP estimates that the premium would come up to S$4 to S$4.50 a month per worker, or about 0.1 per cent of the median income of Singaporeans. Employers would be required to match workers’ contributions.

A retrenched worker would receive the equivalent of 40 per cent of their last drawn salary for up to six months, capped at S$1,200 a month with a minimum payout of S$500 to benefit low-wage workers.

Payouts after the first payout will be conditional on the worker actively seeking a new job or undergoing re-training.”

Source: CNA

2) Jamus did not or had no time to include more details of the Redundancy Insurance scheme during the live TV debate, so Dr Wu didn’t know that payouts are at minimum $500 and capped at $1200.

If we consider the minimum payout $500 per month, total payout for 6 months would be $500×6=$3000. It then works out that a worker can claim the benefit every 3000/4=750 months, or 62.5 years. Much shorter than 280 years, but still quite long.

3) Zaobao published a reader’s response to Dr Wu’s article today (July 21st).

What an exciting night! Here’s my totally unprofessional “critique” of the GE2020 political debate

 

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Gabrielle Teo

Author Gabrielle Teo

I read lots, and I also spend an indecent amount of time trying to get my mostly unpopular opinions published. Oh, I argue a lot with fellow Singaporeans who complain incessantly about Singapore too.

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